Re: The Pentagon and Poverty

[pdavidso <pdavidso@xxxxxxx>]

>===== Original Message From Clifford Poirot <cpoirot@xxxxxxxxxxx> =====
>Still no indication this is coming through on the list-but I find the
>discussion helpful to me anyway-I know I can always count on you to make me
>think through my positions Paul. And that's a good thing. You're almost as
>stubborn as me :-) (almost).

Maybe its a tie.
>
>If you moved towards more guns and
>less butter than at A, then the  marginal propensity to consume of the
>additional workers would have to be NEGATIVE.  Do you really think that is
>so.
> You could only achieve your position of more guns and less butter, if the
>government increased taxes sufficiently so that the total labor force
>(including the newly employed)  plus the profit recipients had less
>disposable
>income than at the less than full employment point A in your example. So
>your
>example implies lower deficits or surpluses at full employment compared to
>the
>deficit at your point A.
>
>I don't think this is necessary: Let Tf=Potential Tax Receipts at Full
>Employment. This is calculated (or at least estimated) by To + T(Yf), where
>Yf=National Income at Full employment.
>
>Let current taxes Ta= To +T(Ya) where Ya = current national income.
>
>Let Ga=current government spending and let Gf=what government could spend if
>it balanced the budget **at full employment**-or let Gf equal "potential
>spending" by the government. In other words if Tf=Ta=Gf=Ga. This is the
>condition for a full employment balanced budget.
>

Who says the government must run a balanced budget at full employment?  If
there is an over propensity to save at full employment (i.e., planned savings
at full employment exceeds planned investment at full employment, then
government deficits would be necessary to achieve and maintain full employment
position of effective demand.

>Let the current deficit =Ta-Ga=0 (to make it simple I'll assume the
>government starts at a balanced budget. Let Ga be split equally between guns
>and butter.
>
>If the government expands Ga so that Ga=Gf but does not increase taxes, then
>the deficit expands to Gf-Ta. Obviuosly, the government can finance this
>deficit by selling bonds. Government can incur the deficit by simultaneously
>reducing Gb (government spending on butter) and increasing Gg(government
>spending on guns by more than the reduction in government spending on
>butter).


Usually government expenditure isnot considered "butter" for the guns vs.
butter concept implies Consumption for Butter.  Remember in a non-socialist
system, i.e., in the absence of socialized medicine, the federal government
(at least) is not supposed to be spending directly on health, etc.

>
>There is no need to get into discussions about MPC. Nor does this say that
>private production of butter will not increase as guns workers have more
>money to spend.

Yes ti is necessary to study the MPC AFTER TAXES to see what is happening --
rather than you merely assuming the government expenditures on " butter" falls
by more than the increase in aggregate demand for butter by the additional
hired workers and higher profit income to profit recipients

You merely assume this problem away ---with your assumption of a balanced
govenrment budget at full employment, etc.

It is unfair to use your assumptions to "prove" your argument!!







>
>Obviously, there would be an increase in the deficit and an increase in
>jobs.
>
>
>>
>>
>>>I am arguing that until full employment, there is no REAL budget
>>constraint.
>>As an economist -- don't you agree?
>>
>>No.
>>
>>
>
>>Well if you do not agree -- then what 1s the REAL resource constraint to
>>expanding output at less than full employment?
>
>The constraint to expanding output at less than full employment is (and I
>think we agree on this) effective demand. The question is how does effective
>demand respond to the government deficit and /or increased government
>spending?
>

Effective demand (i.e., the intersection of the aggregate supply and aggregate
demand curves) is merely the result of expected profits of maximizing
entrepreneurs just being met by sales revenuies.  It is the constraint for any
equilibrium level of employment, not just the full employment level.


>
>
>
>>>Would you prefer recesion-- In the olden days, before the soviet union
>>collapsed, military spending to dig holes in the ground saand fill them up
>>with missles that we nerver used-- ids the equivalent of Keynes's filling
>>holes with town rubbish, etc from the GT.
>>
>>At least it created jobs and the multiplier spending created jobs in useful
>>inmdustry outputs.
>>
>>Yes-but it also distorted budget priorities and the economy. Military
>>spending multipliers have been calculated as being lower than normal
>>multipliers, and as I said, it locks in structural imbalances in the
>>economy.
>
>
>>Nothing is locked into the economy if you start from less than full
>>employment.
>
>You misunderstand my use of "lock in" here. I mean "locked into" the future
>path of the economy. A path dependent economy is an evolving economy through
>time. My ability to use and direct resources today depends on how I used
>resources yesterday. If, for example, the actors in the economy "learn by
>doing" and acquire capital goods and knowledge in the military sector, they
>will not be able to dismantle this knowledge and capital and transfer it to
>the civilian sector with complete factor substitutability.

And is horses had wings they could gfly.  Again your argument is merely your
assumptions! Clearly as the old "TANG" commmercial pointed out, the space
program spun off a "dried" orange drink for household consumption-- this may
not be butter but, hey, orange juise is surely an important consumer good--).

 If the Cambridge
>capital debates taught us nothing else, they hopefully, taught us that.

I'm sorry but the Cambridge debates didn't teach me that -- it merely taught
that the curve relating the demand for using capital and the rate of interest
need not be monotonically declining -- but may have switch points!  I fail to
see how swithc pointshas anything to do with adopiting military technology to
civilian use.


 This
>is one of the reasons it is so hard to change the Soviet Economy. The Soviet
>Military Industrial Complex worked quite well-if your goal was to produce
>large numbers of tanks and lots of concrete. But a lot of the accumulated
>capital goods of the former Soviet Union cannot be easily transformed into
>useable civilian goods. So the Soviet-Military Industrial Complex has
>created a path dependent structure. It is locked in and overcoming this
>"lock in" is very difficult and very expensive.

The soviet system is a poor example to draw upon when you are trying to ague
about what will happen in a market -oriented entreprneurial system.

>
>>What you are objecting to is a political decision and has nothing to do
>with
>>economics.
>
>There are three solutions to the problem of structural unemployment here in
>Appalachian Ohio that are being followed. 1 is to spend money on health,
>hire a lot of inefficient workers, and gouge those of with us insurance when
>we pay for health care.

GOUGE?  Why GOUGE, if you are spending what it necessary to bring the product
(service) to market?  GOUGE usually means a market where there is a high
degree of monopoly power (in the LERNER measure sense);

 I may object to the high price of health care, both
>as an economist when I compare us to other industrialized nations and I may
>also point out as an economist that health care is at least a good that
>increases people's capacities (see Sen and Nussbaum for further discussion
>of the concept of capacities).

A nobel prize in economics, unfortunately, does not per se imply a good
economist in my view.




The other solution is to spend on higher
>education which as an economist I can also point out as containing
>signficant waste (we'll say its Veblenian waste and status seeking to avoid
>an argument about Pareto efficiency), but also producing usable (perhaps)
>stocks of human capital and having potential spin offs to the private
>sector.
>
>The third solution is to build prisons to house people with long prison
>sentences, many of whom are sentenced for non-violent drug offenses.


>
>Are you telling me as  an economist I cannot ask people to distinguish
>bewteen the impact of health and spending education, vs. spending on
>prisons? Building prisons creates jobs and soaks up the unemployed one way
>or the other.

You can say anything you want it is a free country -- but whether prisons or
educvation is the better "social good" -- to use your extreme example -- is
not, in my view,  something that an economist -cum professional economist, can
make an authoritarian view.

I may not like the music that my grandchildren listen to -- and may even think
it is, in some sense uncivilized, but as an economist anlayzing a market
system, I can not say that my grandchildren should spend less on such music
and more on non-fictional books -- although ias gandpa I can!


>
>>You want to impose your own value judgments on the political side of the
>cin.
>>I have no objection to you trying to affect the politics of the situation
>--
>>but do not try to wrap this in a smoke screen of economic jargon.
>
>How is it mere economic jargon to talk about the impact of spending on human
>functioning, or to discuss the social value of government projects.
>
>Perhaps we have a disagreement about what economics is and what economists
>should do. That is why I am as much a "social economist" or an
>"institutionalist economist" as I am a "Post-Keynesian".


Right! I think this is the basic difference between us.  I beleive that
economists can agree on the desireability ofhaving a market system with
institutions that act as a balancing wheel to assure that effective demand
comes as close to full employment as possible. Once we get onto "social
values" I don't think your opinions or my opinions are wrong -- I only believe
that economists should not wrap themselves in the high priest robes who
pontificate on good and bad --



Economists like
>Ayres, Myrdal and others have always insisted on taking into account the
>creation  of "social value" and the distinction between instrumental vs.
>ceremonial enterprises. Military spending (which is to some degree a
>necessary evil) is about as ceremonial as it gets.

Is professionmal sports ceremonial? How about movies and TV?

It is past binding and it
>is heirarchical binding. It binds the value of military prowess to the
>present. Despite my Quaker background, I cannot bring myself to be a total
>pacifist. I can accept a need for a military. I can, at the same time, as an
>economist, point out how military spending creates some social "disvalues"
>at the same time.
>

The absence of military and police power can result in what we recently
observed in Haiti in terms of looting and violence in the streets -- was that
a social good (sincve it overthrew a demcratically elected president or was it
a social bad?

Is a police force that keeps the peace, enforces criminal laws bad ?  Should
we put more resources into police or less -- after all police is really guns!

Paul

Paul Davidson
Editor, Journal of Post Keynesian Economics
University of Tennessee
SMC 503
Knoxville, Tennessee 37996-0550
office phone #;(865)974-3303; office fax#(865)974-4601
home phone and fax # (561)369-1951
email pdavidson@xxxxxxx
http://econ.bus.utk.edu/Davidson.html